The Missing Role of Economics in FTC Privacy Policy

Abstract

The FTC has been in the privacy game for almost twenty years. In that time span, the digital economy has exploded, dramatically increasing the importance of privacy regulation to the economy. Unfortunately, the sophistication of the FTC’s privacy policy has yet to keep pace with its stature. Privacy stands today where antitrust stood in the 1970s. Antitrust’s embrace of economics helped transform it into a coherent body of law that almost all agree has been a boon for consumers. Privacy regulation at the FTC is ripe for a similar revolution. We examine the history of FTC privacy enforcement and policy making, with special attention paid to the lack of economic analysis, and we show the unique ability of economic analysis to ferret out conduct that is likely to threaten consumer welfare, and provide a framework for FTC privacy analysis going forward. Specifically, the FTC needs to be more precise in identifying privacy harms and to develop an empirical footing for both its enforcement posture and prophylactic measures that it urges firms to adopt, such as “privacy by design” and “data minimization.” The sooner that the FTC begins to incorporate serious economic analysis and rigorous empirical evidence into its privacy policy, the sooner consumers will begin to reap the rewards.

Keywords: antitrust, consumer welfare, cost-benefit analysis, deceptive practices, digital economy, Federal Trade Commission, FTC, law and economics, privacy

JEL Classification: K20, K21